EconPapers    
Economics at your fingertips  
 

The effect of relationships with government-owned banks on cash flow constraints: Evidence from India

Anand Srinivasan and Ashok Thampy

Journal of Corporate Finance, 2017, vol. 46, issue C, 361-373

Abstract: We examine the effect of maintaining exclusive relationships with Government Owned Banks (GOBs) on real investment by publicly traded companies in India. Firms that maintain such exclusive relationships have an investment cash flow sensitivity that is almost 30% lower relative to other firms. GOB relationships also increase sensitivity of investment to Tobin's Q. Exclusive relationships with private banks increase cash flow sensitivity while exclusive relationships with foreign banks have no impact. The lower investment cash flow sensitivity by firms with exclusive GOB relationships is not the result of cherry picking of less constrained firms by GOBs. Rather, firms with exclusive GOB relationships are in worse financial condition relative to other firms – thus, GOBs appear to be doing reverse of cherry picking. Surprisingly, the results are driven by the large firms which benefit from GOB relationship and not the smaller firms which are the intended beneficiaries of government directed credit programs.

Keywords: Banking; Government owned banks; Credit; Cash flow; Investment; India (search for similar items in EconPapers)
Date: 2017
References: View references in EconPapers View complete reference list from CitEc
Citations View citations in EconPapers (1) Track citations by RSS feed

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S092911991730425X
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:corfin:v:46:y:2017:i:c:p:361-373

Access Statistics for this article

Journal of Corporate Finance is currently edited by A. Poulsen and J. Netter

More articles in Journal of Corporate Finance from Elsevier
Series data maintained by Dana Niculescu ().

 
Page updated 2017-12-30
Handle: RePEc:eee:corfin:v:46:y:2017:i:c:p:361-373